Update Country Report Curaçao 03 Nov 2021

Event

The College financieel toezicht Curaçao en Sint Maarten (CFT, the financial supervision board) released a statement in late October warning that Curaçao needed to aim for a balanced budget in 2023. The CFT also noted that securing additional liquidity funding from the Netherlands in 2022 would be crucial to achieving this objective.

Analysis

According to the CFT, Curaçao's national debt has risen to Naf4.2bn (US$2.3bn, or about 83% of GDP), partly because the government has been forced to take on more debt over the past two years of economic downturn. The latest budget assumptions include a GDP growth projection of 6.2% in 2022; faster economic growth would lead to a rise in tax revenue and reduce the need for further borrowing. However, the CFT has warned that greater efforts are needed to boost revenue and trim expenditure in 2022. In particular, the CFT recommends a tax reform designed to broaden the tax base and reduce the administrative cost burden. If implemented in late 2021 or early 2022, the CFT suggests that the revenue generated by this reform would be such that a planned government contribution to the swing fund (all funds held by the Social Insurance Bank) would not be needed.

At present, the budget anticipates a deficit of Naf262m (US$147m) in 2022 and a return to a balanced budget by 2023. However, the CFT noted that Curaçao would need to run a surplus in subsequent years in order to service its debt. In this regard, securing additional financing from the Netherlands in 2022 will be critical. Liquidity support first provided by the Dutch government in 2020 amid the Covid-19 crisis is set to expire in April 2022. Discussions about extending it are set to take place in late 2021; as before, ongoing support will come with fiscal and reform conditions.

Impact on the forecast

Our current forecasts for 2022 assume an extension of Dutch liquidity support. A collapse in negotiations for the liquidity extension-caused, for example, by the government's failure commit to reform measures-would create financing problems and potentially necessitate even sharper emergency consolidation measures. This would in turn mar the outlook for Curaçao's economic recovery in the coming years.